Canada's Stock Market Is Beating The Rest Of The World By A Mile

A sign board displaying Toronto Stock Exchange (TSX) stock information is seen in Toronto June 23, 2014. Canadian stocks are outperforming every major stock index tracked by Bloomberg Markets since the start of this year. | Mark Blinch / Reuters

But that was then. Fast forward to mid-2016, and Canadian stocks are outperforming every major stock index tracked by Bloomberg Markets.

The S&P TSX Composite, which measures the value of the Toronto Stock Exchange, is up 9.6 per cent since the start of the year. That’s more than twice as fast as the next-fastest market — New York.

Why the sudden turnaround? It has everything to do with the bounce-back in commodity prices in general, and oil prices in particular.

Toronto’s commodity-heavy stock market underperformed for years while New York’s tech stocks soared through the stratosphere. But with tech earnings under pressure and the price of oil bouncing back (partly) to 10-month highs around the US$50 mark, these markets are seeing a reversal of fortune.

But here's the rub: Look at the long-term performance of the TSX, and it's still trading sideways. It was trading at around 14,226.16 as of Thursday afternoon — well below its peak above 15,500 in 2014.

The S&P TSX Composite Index over the past five years. (Chart: TMX)

Will the rally last?

Many analysts are growing convinced the recent commodities rally is the genuine article. They note it’s not just one or two items like oil that are soaring — everything from gold to sugar and soybeans is up this year, and that bodes well for commodity economies like Canada’s.

But not everyone is convinced the rally will last. Commodity prices largely depend on demand in the parts of the world where manufacturing takes place — namely China, these days, and China’s economy is struggling.

“There is no fundamental long-lasting recovery in the commodity space without global demand growth shifting course and accelerating, and that’s just not in the cards in the foreseeable future,” David Rosenberg, chief economist Gluskin Sheff in Toronto, said earlier this week.

He describes the rally as a “dead cat bounce” — meaning stock prices fell so fast that they rebounded when they hit bottom, but won’t be rising permanently anytime soon.

So the same sage advice applies today as it ever did: Keep a diversified investment portfolio.

Pictured: The cat, in happier times
A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce is a small, short-lived recovery in the price of a declining security, such as a stock.
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Pictured: Topless chess in Serbia, not to be confused with stock market instruments
ASX's Clearing House Electronic Sub-Register System which is ASX's settlement system and central register for electronic transfer of share ownership and associated cash payments.
ASX Glossary

Pictured: A harp, although a lute would've also illustrated the point.
More complex instruments which may involve one or a number of unusual features.
ASX Glossary

Pictured: An imperfect hedge
An example of a hedge would be if you owned a stock, then sold a futures contract stating that you will sell your stock at a set price, therefore avoiding market fluctuations.
Investors use this strategy when they are unsure of what the market will do. A perfect hedge reduces your risk to nothing (except for the cost of the hedge).
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Pictured: Hands in the air are optional during this notification
Notification by the buyer (taker) of an option or warrant of their decision to buy or sell the underlying asset or in the case of cash settled contracts to receive a cash payment.
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Pictured: Just as wrinkles settle in, so does cash upon maturity
When the term of a contract or agreement finishes. May involve cash or physical settlement.
ASX Glossary

Pictured: Providing access at the click of a button
Contract between two parties giving the taker (buyer) the right, but not the obligation, to buy or sell a pre-existing underlying asset at a particular price on or before a particular date.
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Pictured: Not to be confused with Rhythmic Gymnastics
Computerised, rule-based system responsible for executing orders to buy or sell a security.
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Pictured: MMA fighter Ronda Rousey does a mean holding lock
Facility that prevents securities from being deducted from, or entered into, a holding pursuant to a Transfer or Conversion.
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Pictured: Good things come in small packaging
The sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is motivated by the belief that a security's price will decline, enabling it to be bought back at a lower price to make a profit.
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Pictured: The tango, or 'not backwardation' in financial circles
Situation in which futures market prices are progressively higher in the future delivery months than in the nearest delivery month. Contango is the opposite of backwardation.

Pictured: Hybrid drivers seek convertible features too
A single financial security that combines two or more different financial instruments. Hybrid securities, often referred to as "hybrids," generally combine both debt and equity characteristics. The most common type of hybrid security is a convertible bond that has features of an ordinary bond but is heavily influenced by the price movements of the stock into which it is convertible.
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Pictured: Easy to buy, easy to sell, hard not to dribble
Measure of the ability to buy or sell assets easily and with little impact on price.
ASX Glossary

Pictured: Easy way to remember: Drop Bears
A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows. Although figures can vary, for many, a downturn of 20\% or more in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor's 500 Index (S&P 500), over at least a two-month period, is considered an entry into a bear market.
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Pictured: Salt and vinegar Pringles, the Blue Chip of Chips
Larger companies with a long history of profitability and stability.
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Pictured: The more pleasurable margin
You would receive a margin call from a broker if one or more of the securities you had bought (with borrowed money) decreased in value past a certain point. You would be forced either to deposit more money in the account or to sell off some of your assets.
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Pictured: Easy way to remember -- bulls' horns go up
Bull markets are characterized by optimism, investor confidence and expectations that strong results will continue. It's difficult to predict consistently when the trends in the market will change. Part of the difficulty is that psychological effects and speculation may sometimes play a large role in the markets.
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